Homes as investments in continually increasing national median home values

The national median house value kept going up through November 2020:

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Despite a global pandemic and an economic downturn, U.S. home prices pushed new boundaries last year: The national median sale price for existing homes hit $310,800 in November, marking 105 straight months of year-over-year gains, according to data from the National Association of Realtors.

This could reinforce the now common viewpoint that homes are investments. Increasing median values for over eight suggests reinforces the idea that homes generally go up in value. Except for big economic crises – think the burst housing bubble of the late 2000s – houses accrue value over time. Even COVID-19 could not derail this.

This is often viewed as a good thing. Homeowners like that their homes are increasing in value because they can make more money when they sell. Communities take this as a marker of status. Realtors and others in the housing industry benefit. No one wants a drop in housing values across the board. (Of course, this is the median so the values can differ a lot by location.)

The commodification changes how owners, developers, and communities think about houses. They are not just the private spaces to escape the outside world – an established idea in the American Dream – but goods to profit from. An increasing value must be good and steps in other areas should be taken to protect home values.

This has numerous effects. It encourages Americans to invest resources in buying housing when that money could be put to use elsewhere. It contributes to single-use zoning where homes are protected from any other possible uses. It can exacerbate the inequality gap between those who can buy homes and those who cannot or between those with homes in places where the values keep going up versus those with homes in places with stagnant values.

Videogames under the tree to sizable global industry

The flood of new gaming consoles and new game titles to Americans for the Christmas season hints at the size of the video gaming industry:

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Global videogame revenue is expected to surge 20% to $179.7 billion in 2020, according to IDC data, making the videogame industry a bigger moneymaker than the global movie and sports industries combined. The global film industry reached $100 billion in revenue for the first time in 2019, according to the Motion Picture Association, while PwC estimated global sports would bring in more than $75 billion in 2020

The videogame industry has boomed in recent years because of the variety of ways to play games. Gone are the days when all one had to track were console sales and games sold for their respective consoles and PCs. With the rise of digital-copy game sales, mobile games, in-app purchase freemium games, cross-platform games that aren’t limited to a specific console, streaming game services like Microsoft’s Game Pass, games-as-a-subscription models, and online distribution services like Steam, along with varying levels of transparency, anyone wanting to make apples-to-apples comparisons encounters an unwieldy fruit basket.

While console sales will get a boost from new versions, that’s not the biggest chunk of the industry, nor the fastest-growing. The biggest gain is expected to come from mobile gaming, with China playing a big role in smartphone and tablet gaming revenue, Ward said. Excluding in-game ad revenue, world-wide mobile gaming revenues are expected to surge 24% from a year ago, to $87.7 billion.

The gamification of the world is well underway.

Seriously, it is interesting to compare the status of videogames compared to the two industries mentioned in the article: movies and sports. These are established industries with prominent actors around the world. They have been established for decades. Videogames, on the other hand, are more recent – only several decades in the hands of the global public – and still have negative connotations for many (too violent, a waste of time, played only by a certain segment of the population, etc.). Since videogames are big business and part of their spread is due to the smartphone, which many have, will videogames have a different status in a few years?

Companies moving out of California – yet continuing offices and operations in California

I have read several news stories discussing the move of companies out of California. Such news feeds chatter about companies and residents leaving places because of politics, taxes, discontent, etc. But, the details in this one story suggest some companies are shifting some workers and activity while retaining operations in California.

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“Oracle is implementing a more flexible employee work location policy and has changed its corporate headquarters from Redwood City, California to Austin, Texas,” the filing said. “We believe these moves best position Oracle for growth and provide our personnel with more flexibility about where and how they work.”

The company already has a significant presence in Austin, opening a five-story, 560,000 square-feet campus overlooking Lady Bird Lake. It also has employment hubs in Redwood City, Santa Monica, Seattle, Denver, Orlando and Burlington…

Oracle follows a handful of similar moves by California companies and high-profile business leaders leaving the state. Tesla CEO Elon Musk announced he had moved to Austin last week at The Wall Street Journal’s CEO Council summit. His exodus followed months of bashing California for its handling of the pandemic. The billionaire CEO said he is maintaining company operations in California, but also has significant operations for Tesla and SpaceX in Texas…

HP Enterprise also announced its decision to relocate its headquarters from San Jose to the Houston suburb of Spring earlier this month. Palantir Technologies relocated from Palo Alto as well this year, landing in Denver. Tech giants Google and Apple have also been expanding their presence in Austin over the last several years.

Headquarters are important, particularly for cities. Attracting the headquarters of a major company is a big status symbol for any big city. See the interest in trying to attract Amazon’s second headquarters. The implication is that the new location has a favorable business climate and is on the rise (with the opposite assumed of the previous location).

But, headquarters are just part of a company. They may be the nerve center and the physical home of company executives. Yet, large companies today can have offices and plants all over the place connected to a headquarters elsewhere.

Another way to read the moves out of California above is to suggest that these companies are hedging their bets by being located in numerous advantageous locales. Having multiple locations can help take advantage of local tax breaks for particular purposes, build on local work forces, maintain their place in local social networks, and provide points to pivot around when conditions change. The headquarters may have moved but they may move again and the companies still see some value in keeping operations going in California (even if some of this is simply due to inertia).

This suggests a different future reality than one where cities serve as anchors for major corporations. Instead, major multinational corporations keep offices and facilities all over the place, ready to move when needed or when an opportunity arises. Austin and Houston might be attractive now, Miami or Denver in a few years (just sticking to US locations). And as cities continue to look for an edge over their competition, attracting another big company is important…even as that company is actually rooted in multiple locations.

Where shopping mall debt ends up

A story of several traders who shorted shopping mall debt provides insights into financial workings of shopping malls:

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Then, in October 2018, Sears declared bankruptcy, and they decided it was time. Here was the scheme: MP built a position against two slices—called “tranches” in Wall-Street speak—of mall debt with, they thought, a relatively low likelihood of being repaid: CMBX.6 BB and BBB-, which were filled with roughly $2 billion worth of debt, an outsized chunk of which was issued to 39 struggling shopping malls. They bought credit default swaps on the block of debt, which amount to insurance policies on the bonds. If the bonds went completely bust—similar to, say, your house burning down—they would be owed their entire value in cash. But even if the tranches decreased in value, MP’s insurance would be worth more and they could sell the swaps for a profit. In any case, it was an asymmetric bet: the downside risk was confined to what they’d have to pay to hold the insurance, but the potential payout was many multiples of that amount—theoretically in the billions…

Meanwhile, McKee was becoming known on Wall Street as “The Queen of Malls,” and other bearish hedge funds began asking her for advice on shorting CMBX.6. “All I did was talk about malls all day,” she said. This included portfolio managers working for the infamous billionaire activist investor Carl Icahn, who, by the end of 2019, had put on a $5 billion short position, arguably the largest by anyone on Wall Street. This went against conventional wisdom at the time, considering that the value of the mall debt was going up, but once word got out that Icahn had entered the ring, the trade was taken more seriously on Wall Street. “That made a lot of people stand up and say, ‘Hold on, we should look at this,’” McNamara said…

Between March and July, as businesses struggled to pay their rent, CMBS delinquencies, according to Trepp, increased by a staggering 492 percent, the value of the hotly contested CMBX.6 tranches were slashed in half, and the brick-and-mortar retail sector was on the verge of going belly-up. Large retailers like Gap stopped paying rent; Neiman Marcus, J.Crew, Brooks Brothers, Ann Taylor, Loft, Pier 1 Imports, GNC, and JCPenney (among many others) filed for bankruptcy; Victoria’s Secret was closing hundreds of stores and Lord & Taylor announced it was closing its doors for good and liquidating inventory; TJX and Macy’s recorded losses of $5 billion and $2.5 billion, respectively; foot traffic for shopping malls plummeted to basically zero; and, in April, clothing sales fell 79 percent, the largest drop on record. “The economy has declared war on your aunt’s wardrobe,” Scott Galloway, marketing professor at New York University, mused on his podcast Pivot. As for Crystal Mall, Simon Property Group, its landlord, defaulted on the mortgage and is planning on handing over the keys to their special servicer…

COVID-19 also revealed a dirty secret hidden in the crawlspace upon which many commercial mortgage-backed securities were built. A University of Texas at Austin study published in August claimed that banks knowingly inflated underwriting income for $650 billion worth of commercial real estate mortgages issued between 2013 and 2019, including by 5 percent or more for nearly a third of the roughly 40,000 loans. “A well-documented historical pattern is that fraud thrives in boom periods and is revealed in busts,” the university researchers wrote, adding that end investors were unaware of this hidden risk, a deception akin to buying a Ferrari secretly outfitted with a rusted-out Kia engine. It could be argued that CMBS had been a magic trick all along, with big banks one step ahead, luring investors to pick a card from a rigged deck. It took a global pandemic—an act of God—to reveal this financial sleight of hand.

Americans and financial institutions were bullish about single-family homes into the 2000s, until they were not and the housing market imploded. Americans liked shopping malls…and is this a repeat?

Since the story suggests those shorting shopping malls are in the minority, does this mean other investors truly believe shopping malls will successfully reinvent themselves and or redevelop enough to successfully pay their mortgages? Or, are a lot of people hoping that shopping malls make it through?

The default of shopping malls could have a broad effect, particularly on communities that will struggle to fill that space and recapture some of the tax revenue that shopping malls could bring in. More broadly, the difficulties retailers face could impact a lot of people in multiple ways.

Making a big deal out of a round number, Dow at 30,000 edition

The Dow recently topped 30,000. What is notable about this number?

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How big a deal is Dow 30,000?

It’s just an arbitrary number, and it doesn’t mean things are much better than when the Dow was at 29,999. What’s more impactful is that the Dow has finally clawed back all its losses from the pandemic and is once again reaching new heights. It is up 61.5% since dropping below 18,600 on March 23.

It took just over nine months for the Dow to surpass the record it had set in February, before panic about the coronavirus triggered the market’s breathtaking sell-off.

I like this explanation for two reasons. First, it downplays hitting 30,000 just because it is a large round number. Why should 30,000 be more important than 29,000 or 29,852? Because round numbers seem more meaningful to us, especially one that is a change from the 20,000s to the 30,000s. Second, it provides a longer context for the rise to 30,000. That particular number is meaningful in part because of the record in February, the drop in March, and then the steady rise. Arguably, this rise since March is much more important than getting past a particular number.

In addition to these steps, a few more could help people interpret the 30,000 figure. Instead of focusing on a particular number, how about discussing the percentage change? This is done regularly with other financial figures. Such a story is ripe for a visual showing the change over time. And a final option would be to downplay such milestone numbers in this story and in future reporting and instead focus on other markers of financial patterns rather than emphasizing outliers (peaks and valleys).

Percentage of delinquent FHA loans keeps rising

The economic and social consequences of COVID-19 might be just beginning. A new report suggests a number of FHA mortgage holders are behind in payments:

More than 17% of the Federal Housing Administration’s almost 8 million home loans nationwide were delinquent in August, according to a new study from the American Enterprise Institute.

“Rising FHA delinquency rates threaten homeowners and neighborhoods in numerous other metro areas across the country,” American Enterprise Institute researchers said in the just released report. “It would be expected that these delinquency percentages will increase over time…

The increase in late FHA loan payments is even greater than the rise in the number of overall mortgage delinquencies since the start of the pandemic…

A new study by the Federal Reserve Bank of Dallas warns that highly indebted FHA borrowers are at risk of losing their homes when payment forbearance programs end.

More people falling significantly behind on their mortgages – plus other issues related to housing – could have ripple effects on a number of actors:

  1. Americans who need housing. If you cannot afford your mortgage or rent, what viable options do you have?
  2. Mortgage providers. If a lot of mortgages go into default or foreclosure, what does this mean for these large financial actors?
  3. Local governments and communities. With larger numbers of people without housing and limited housing, what happens? What happens to local tax revenues?
  4. Housing investors and people with resources. Does this mean they can take advantage of opportunities?

The memory of the burst housing bubble just over ten years ago lingers. While few predicted a worldwide pandemic and the resulting impact on housing, we could know within a few months whether this will lead to another housing crisis.

Aiming “to bring spiritual richness to corporate America”

Spiritual consultants look to bring spiritual practices and approaches to the American workplace:

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In simpler times, divinity schools sent their graduates out to lead congregations or conduct academic research. Now there is a more office-bound calling: the spiritual consultant. Those who have chosen this path have founded agencies — some for-profit, some not — with similar-sounding names: Sacred Design Lab, Ritual Design Lab, Ritualist. They blend the obscure language of the sacred with the also obscure language of management consulting to provide clients with a range of spiritually inflected services, from architecture to employee training to ritual design.

Their larger goal is to soften cruel capitalism, making space for the soul, and to encourage employees to ask if what they are doing is good in a higher sense. Having watched social justice get readily absorbed into corporate culture, they want to see if more American businesses are ready for faith…

Before the pandemic, these agencies got their footing helping companies with design — refining their products, physical spaces and branding. They also consulted on strategy, workflow and staff management. With digital workers stuck at home since March, a new opportunity has emerged. Employers are finding their workers atomized and agitated, and are looking for guidance to bring them back together. Now the sacred consultants are helping to usher in new rituals for shapeless workdays, and trying to give employees routines that are imbued with meaning…

The Sacred Design Lab trio use the language of faith and church to talk about their efforts. They talk about organized religion as a technology for delivering meaning.

Perhaps this is common elsewhere but this strikes me as uniquely American for multiple reasons:

-The interest in unbundling religion and spirituality from traditional religious practices

-Combining spirituality and work. Perhaps this hints the true religion in America is capitalism?

-Assuming there is a common religiosity that can work across a potentially diverse workforce. Kind of like civil religion, which attempts to unite religion and nationalism, but for the office.

-Religion being less about transcendence or encountering the divine and more about pragmatism: helping corporations succeed and individuals find or interact with their soul.

-The entrepreneurial nature of bringing religion to the workplace. This article profiles consultants and firms bringing it in. (It would be interesting to see how this interacts with more top-down approaches from CEOs or other corporate leaders who bring a strong faith or spiritual elements to their practices and aims.)

I will be curious to see (1) what kind of traction this approach gets – does it have staying power? What kinds of spirituality in the office catch on and which do not? – and (2) what the reaction might be among a range of firms and sectors – is this something limited to educated, managerial suites in particular locations?

Local TV market ad celebrities, Bob Rohrman edition

For decades, American television viewers have been treated to (or subjected to, depending on one’s point of view) recurring characters in local television ads. In the Chicago region, Bob Rohrman was a mainstay:

Of all the Chicago auto dealers who ever graced the small screen as their own TV pitchman, few were as delightfully campy as Bob Rohrman.

Rohrman’s low-budget commercials radiated good humor and bad production, featuring his mustachioed and bespectacled face peering out from a variety of goofy costumes, a uniquely awkward delivery and flubbed lines that often devolved into a joyous cackle.

The spots were punctuated by a cheesy cartoon lion and the tag line: “There’s only one Bob ROHRRRR-man!”

Somehow it all worked, turning the Bob Rohrman Auto Group into one of the largest family-owned dealership groups in the Midwest, and its spokesman/founder into something of a Chicago celebrity.

In the era of cable and satellite television, streaming options, declining network television and local radio, and targeted commercials on particular platforms, we may be at the end of local advertising like this. All the advertising then becomes more corporate, slick, tied to national or multinational corporations. And we lose a few public characters who few people may have actually met but who many could recognize.

We purchased a vehicle from a Rohrman dealership several years ago. At no point, did I think about the commercials in that process. But, given the number of Rohrman commercials I have seen and heard over the years, who knows if it influenced me. (I can safely say that other auto pitchmen or dealers, including Max Madsen or the Webb boys, did not lead me to visit their lots.)

New and existing home sales up but…

Recent data shows both increased new and existing home sales:

Sales of new homes in the US soared to their highest level since December 2006 in July as Americans took advantage of historically low interest rates.

Single-family home sales leaped 13.9% to a seasonally adjusted annual rate of 901,000 units, according to data released by the US Census Bureau on Tuesday. Median sales price gained 7.2% to $330,600 from the year-ago period…

The better-than-expected data follows a similarly positive report on existing home sales. Sales of previously owned homes spiked a record 24.7% to a seasonally adjusted rate of 5.86 million last month, according to a Friday release from the National Association of Realtors. Economists anticipated a 5.41 million rate.

Some of this is not a surprise given low interest rates. There is no mention here, but if it is true that significant numbers of city-dwellers are looking elsewhere, that could be driving demand.

At the same time, this is an odd time for increased housing sales. We are in the middle of a pandemic and the uncertainty and unemployment that has brought. Some indicators of the economy are okay but others are less positive.

With that, it is hard to know whether this is more of a blip or a long-term trend. Perhaps this is part of a rebound in homeownership or an odd confluence of factors in an unusual year.

And it would be helpful to have more data. The Census report suggests 61% of the private new homes sold in July 2020 were between $200k and $399k while 29% were over $400k. What kinds of homes are these and where exactly are they located (beyond regions, how about suburbs versus cities?)

Flipping houses stats – up then Great Recession then up then down again – and questions

How many houses have been flipped in the United States in the last fifteen years? Here are some of the stats:

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In the first three months of 2020, 7.5% of homes sold in the United States were flipped, according to a June report from real estate research firm ATTOM Data Solutions. That’s the highest rate since 2006 and a jump from 6.3% at the end of 2019.

Home flipping rates had dropped drastically in 2007 and began to gradually recover in 2010. The number of flipped homes sold in a quarter peaked around 100,000 in 2005, and while it was on the rise in recent years, a decline began in the second quarter of 2019. In the first quarter of 2020, 53,705 single-family homes and condos were flipped, according to the report.

Profit margins have also dropped since 2019, hitting the lowest return-on-investment since 2011. After plummeting with the national economy between 2006 and 2008, profit margins on flipped homes grew at a steady rate until 2017. But since then, return-on-investment has been on a decline.

Still, it’s too soon to fully grasp how the coronavirus pandemic will impact the house flipping market through 2020 and beyond, ATTOM chief product officer Todd Teta said in a statement.

Flipping homes is by now a well-known process due to TV shows and personalities plus its spread throughout the United States. Yet, alongside other phenomena featured on HGTV and among certain groups (such as tiny houses), it can be hard to know how widespread a phenomena is.

Not surprisingly, these stats suggest flipping homes is connected to broader economic conditions: flipping increases when property values are high and repairs to a home can pay off in a sale. When times are tough and property values stagnate or even drop, there is less money to be made in flipping homes.

In the data above, it would be helpful to see how the national trends compare to patterns in particular places. Does flipping work in the hottest markets where prices are already high (limiting who can flip)? What about Rust Belt communities in good and bad times? Suburbs? Urban neighborhoods? I would guess there is a lot of variation across communities.

It is also worth considering what happens to the housing stock in places where flipping does or does not take place. If flipping happens, older housing stock gains new life. If it does not, do these homes simply keep sliding into disrepair?

Finally, this article starts with an example of a family involved in a flipping business but says very little about the role of small flipping businesses or more corporate operations. Even if flipping activity declines during tougher economic times, does it present opportunities for some to buy up properties to flip later? How do the profit margins differ across different kinds of flippers? Are smaller firms or family-owned flippers viewed more favorably by communities than corporate entities?